Rajaratnam begins 11-year insider trading sentence

Grant McCool

3 Min Read

(Reuters) - Hedge fund multimillionaire Raj Rajaratnam began serving his 11-year prison sentence on Monday - the longest on record for insider trading - at a former military base near a small, leafy Massachusetts town.

The 54-year-old Galleon Group founder reported to the prison about 40 miles northwest of Boston, at 12.43 p.m., said Robert Lanza, a spokesman for the Federal Medical Center Devens in Ayer, Massachusetts. He gave no further details.

The prison specializes in housing prisoners with long-term medical needs. Rajaratnam is diabetic and is likely to soon need a kidney transplant, according to court records presented at his sentencing in Manhattan federal court in October.

The central figure in a broad government crackdown on insider trading, Rajaratnam was convicted by a jury in May of running a network of friends and associates who leaked corporate secrets to him for years.

The sentence imposed by U.S. District Judge Richard Holwell was the longest on record for insider trading by one year.

Rajaratnam lost a last-ditch bid on Thursday to be allowed to remain under house arrest in his luxury Manhattan apartment while he appeals the U.S. government’s use of phone taps to gather evidence against him.

His lawyers argued the government violated his constitutional rights to privacy and that the statute was not designed for insider trading investigations. The appeals process could take one year or more. Wiretaps are traditionally used in investigations involving organized crime or drug dealing, not Wall Street cases.

The financier, whose firm once managed $7 billion, will lead a starkly different life at Devens, which covers about 600,000 square feet and was renovated to add a dozen buildings in the mid-1990s at a cost of $78 million.

The Federal Bureau of Prisons inmate handbook for Devens shows a photograph of a complex bounded by lush green grass and secluded by trees in bright fall colors.

The prison has more than 1,000 inmates on the decommissioned military base of Fort Devens. The town of Ayer had a population of about 7,400 in the 2010 U.S. Census.

Sri Lankan-born Rajaratnam’s lawyers had asked the Bureau of Prisons to assign him to Butner in North Carolina, which also has a medical center. That prison is where swindler Bernard Madoff is serving an effective life term.

Rajaratnam has paid $63.8 million in criminal penalties and a judge ordered him to pay $92.8 million in a civil case brought by the U.S. Securities and Exchange Commission.

Former Goldman Sachs Group Inc director Rajat Gupta, a former chief of consulting firm McKinsey & Co, has also been charged with leaking tips to Rajaratnam. Gupta denies the charges.

The cases are USA v Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184, SEC v Galleon Management et al No. 09-08811 in the same court and 2nd U.S. Circuit Court of Appeals, No. 11-4416.